URBANIZATION AND INDUSTRIALIZATION

In 2016, the generally weak world economy, especially the
slowdown in China, as well as its reorientation from an
investment-led to a consumption-based economy, has hit
many African countries directly through a fall in demand
and indirectly via lower global commodity prices.
World commodity prices staged a partial recovery
The commodity prices captured by the International Monetary Fund (IMF) commodity price index began
recovering in the first half of 2016 after hitting a nadir of 83.05 in January 2016—reflecting the combined effect
of abundant global supply, subdued demand and a strengthening dollar. The recovery continued reaching at
114.69 in December 2016 (IMF, 2016b). In 2017 global commodity prices are not forecast to see much further
pickup as the supply–demand balance is not seen changing much.
The global crude oil (petroleum) index rose from its low point of 56.05 in January 2016 as demand grew in
Europe and China, US output fell and supply difficulties were felt in several countries. The price index for
metals stabilized at around 120 points in the third quarter of 2016. After a rally at the start of 2016 on supply
readjustment, falls in prices of copper, nickel and uranium were largely offset by increases in the prices of
aluminium, iron ore and zinc. Prices of food and agricultural commodities increased after the first quarter of
2016. The food price index rose from 139.68 in March 2016 to 145.33 in December 2016, while agricultural
commodities price index rose from 109.57 to 117.24 for the same period.
World trade growth and foreign direct investment stayed weak
In 2016 growth in world trade is expected to slow to 1.8 per cent from 2.4 per cent registered in the previous
year (UNDESA, 2016b; WTO, 2016). Western Europe drove global trade growth, with Asian economies, China
in particular, registering only small increases. Changes in terms of trade were more favourable to developed
economies—increasing by 1.1 per cent in 2016 after a 1.9 per cent rise in 2015—against a decline of 2.3 per cent
in 2016 following a contraction of 3.9 per cent in 2015—in emerging and developing economies. Many of this
latter group depend on commodity exports.
In 2016 foreign direct investment (FDI) inflows are expected to have fallen by up to 15 per cent owing to
weak global demand, concerns over the prospects of many emerging countries, volatile financial markets and
apprehensions over the robustness of economic growth (UNCTAD, 2016a). Over the medium term, global FDI
is expected to pick up in step with guardedly more optimistic expectations of the global macroeconomy.
Medium-term prospects and downside risks
Still, the medium-term outlook remains subject to significant downside risks, given low aggregate demand, rising
inequality and an ageing population in many advanced economies.
Persistently unfavourable terms of trade have highlighted structural vulnerabilities of many commodityexporting,
emerging and developing economies. (These were further heightened by diverging monetary
policies of the advanced economies.) And with reduced fiscal buffers, monetary authorities in many of them are
struggling to alleviate growth concerns while managing potential inflation, their capital accounts and business
confidence.
Downside risks facing Africa are lower demand for exports and weaker FDI inflows than currently forecast.
As world financial markets are tighter and increasingly volatile, African economies might face higher interest
payments and an increased risk of contingent liabilities (IMF, 2016a, c).
RECENT ECONOMIC DEVELOPMENTS IN AFRICA
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